Mobile money transfer is now the new ‘bank of the poor’

Monday March 1 2010

Mobile phone-based money transfer and banking solutions have been recognised as the avenue to take banking services to people outside the formal financial industry.

The services have helped reduce the cost of access to financial services for 2.3 billion people in the world who live on less than $2 per day and cannot afford formal financial services.

According to the “Banking and mobile money transfer solutions in the Comesa region” conference held in Nairobi, these figures go to show that the opposition by banking institutions to financial inclusion of the new technological banking solution was baseless.

The meeting, organised by Africa IT Exhibitions and Conferences (Aitec), underscored the use of mobile phone-based money transfer services to provide banking services to those who cannot access formal services.

The services are cheaper than conventional banking, which comes with expenses the poor could not afford.

Apart from various existing mobile banking solutions in the region like M-pesa, Zap and yuCash, there are about 120 other pilot mobile banking services around the world.

The only concern is how to replicate the success services like M-pesa to other countries.

According to Bill and Melinda Gates Foundation senior programme officer for financial services for the poor Claire Alexandre, mobile banking services have various benefits to the population, including increased productivity and capital flows, helping to manage cashflow as well as enhancing management of erratic incomes.

Ms Alexandre said that opposition from formal banks to networks offering mobile banking is uncalled for as only 10 per cent of people living on less that $2 per day have access to formal savings services.

“The difference between transferring data and voice traffic by mobile operators and transferring money via mobile banking is very minimal,” said Ms Alexandre at the opening session of the two-day conference with the theme “Banking leadership through innovation.”

Reduced costs

She however urged mobile banking providers to look at ways through which the cost of the services could be reduced to reach more people in developing countries, adding that there is “no need to see new players unveiling new mobile money solutions as existing players are enough to create the necessary competition.”

While acknowledging the challenges posed by innovations such as mobile money phone-based transfer services, Mr Kenyatta stressed the need to further strengthen the supervisory capacity of regulatory institutions.

He said this was crucial in light of a recent survey that revealed that 38 per cent of the population is excluded from accessing services from financial institutions.

On his part, Paynet Group chief executive Bernard Matthewman argued for an interconnected automated teller machine systems among local banks and financial institutions “to get out of the current situation where a single street corner has six ATM points serving different bank customers where a single interconnected ATM point could suffice.”

Mr Matthewman, who runs the PesaPoint ATM network currently connecting 53 banks and financial institutions, added that a “ubiquitous presence of ATMs in other parts of the country would lessen bank’s dependence on midtown clients leading to development of new products and services that address the needs of new client segments.

ATM-flooded market

“Kenya has changed from the situation in 2001 when ATMs were targeted at high value account holders — the complete opposite of the practice in developed countries where cards are for low-income account holders with high-value customers being handled face-to-face by the bank.”

Central Bank of Kenya head of national payment systems Stephen Mwaura singled out Kenyan banks for their “tendency to concentrate their outlets and services on mid-town Nairobi where there is a perceived presence of target clientele.

“Adoption of technology by financial institutions and the recent reforms in the banking sector have helped mitigate against payment risk. For instance, the introduction of Real-Time Gross Settlement has enhanced efficiency and speed as transactions are conducted on real-time basis thereby mitigating payment risks for high volume payments,” said Mr Mwaura.